Covid-19 Crisis: Evaluating EU/EMU responses and proposal wiiw - PowerPoint PPT Presentation

Covid-19 Crisis: Evaluating EU/EMU responses and proposal wiiw webinar April 20th 2020 Philipp Heimberger heimberger@wiiw.ac.at Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw)

The bigger macro picture on the Corona crisis in the € area • Corona crisis politics (e.g. debates on ESM and the recovery fund) can be better understood when you take the big macro picture into account • Starting positions of euro area countries are very different • Crisis will affect Southern euro area countries stronger than Northern countries � 2 Philipp Heimberger

GDP per capita gaps have widened in pre-Corona years GDP per capita in North/South (di ff erence to EA-12 average in thousand € ) 1999-2019 6 Di ff erence of GDP per capita to EA-12 average (in thousand € ) 4 2 Northern euro area countries (BE, DE, NL, AT, FI) 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Southern euro area countries (GR, ES, ITA, PT) -2 -4 -6 Source: AMECO; own calculations. 3 � Philipp Heimberger

Unemployment rates rise from a much lower level in Northern euro area countries Unemployment rates in EA North/South (population-weighted) 21 19 17 in % of active population 15 Northern euro area countries 13 (BE, DE, NL, AT, FI) 11 Southern euro area countries (GR, ES, ITA, PT) 9 7 5 3 1999 2002 2005 2008 2011 2014 2017 2020 Source: IMF WEO April 2020; own calculations. 4 � Philipp Heimberger

Differences in how the Corona crisis will affect public debt Public debt to GDP , 2012-2020 170 150 130 in % of GDP France 110 Germany Italy 90 70 50 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: IMF Fiscal Monitor April 2020. 5 � Philipp Heimberger

Fiscal policy responses have to far been very uneven Discretionary 2020 fiscal measures adopted in response to coronavirus, % of 2019 GDP 70 DE 60 50 in % of GDP 40 Other liquidity provisions / guarantees Deferral 30 Immediate fiscal impulse IT 20 ES 10 0 Germany Italy Spain Source: Bruegel 6 � Philipp Heimberger

Summary: The broader context of the Corona crisis • North/south divide in starting positions, but the Corona crisis will also have asymmetric effects, hitting the Southern countries harder • Macroeconomic problems are much more pressing in Italy and Spain than in Germany and Netherlands • Covid-19 shock requires strong European fiscal response • Uneven fiscal response will lead to further divergence and put the survival of the euro area at risk • Macroeconomic divergence has fuelled political polarisation • See debates on ESM and “Corona” bonds � 7 Philipp Heimberger

Covid-19 Crisis: Evaluating EU/EMU responses and proposal Questions • Are the current proposals coming from the Eurogroup and the Commission enough? • What can assure a sustainable recovery of the European economy? • Can disparities between EU-North and EU-South be overcome? • How will Europe emerge in the global context post Covid-19 crisis? • � 8 Philipp Heimberger